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Competition and the Structure of Vertical Relationships in Capital Markets

50 Pages Posted: 13 Dec 2005 Last revised: 18 May 2010

John Asker

New York University - Leonard N. School of Business - Department of Economics

Alexander Ljungqvist

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 4 versions of this paper

Date Written: March 3, 2010

Abstract

We show that information flows between investment banks and firms issuing securities affect the pattern of bank-firm relationships and that shocks to these information flows affect the real economy. Firms appear disinclined to share investment banks with other firms in the same industry, but only when the firms engage in product-market competition. This is consistent with concerns about the disclosure of commercially sensitive information to strategic rivals governing firms’ investment bank choices. Using exogenous shocks to information flows arising from mergers among banks, we show that the desire to avoid sharing investment banks has a substantial effect on affected firms’ investment in capital stock. We discuss how these information effects might help us understand how the investment banking industry is structured, how banks compete, and how prices are set.

Keywords: Investment banking, Securities underwriting, Competition, Bank deregulation, Bank entry, Glass-Steagall Act, Commercial banks

JEL Classification: G21, G24, G28, K22, L11, L14, L84

Suggested Citation

Asker, John and Ljungqvist, Alexander, Competition and the Structure of Vertical Relationships in Capital Markets (March 3, 2010). Available at SSRN: https://ssrn.com/abstract=1012083 or http://dx.doi.org/10.2139/ssrn.1012083

John William Asker

New York University - Leonard N. School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-0062 (Phone)

HOME PAGE: http://pages.stern.nyu.edu/~jasker/

Alexander Ljungqvist (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street, Suite 9-160
New York, NY 10012-1126
United States
212-998-0304 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://pages.stern.nyu.edu/~aljungqv

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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